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SC Suggests amendments to s.11(7)&37 so that orders made u/s.8 &11 are brought on par qua appealable

In the light of what has been decided in Vidya Drolia (supra), Parliament may need to have a re-look at Section 11(7) and Section 37 so that orders made under Sections 8 and 11 are brought on par qua appealability as well. (Para 21)



Decided on March 8th, 2021

The present case was decided by a division bench of the Supreme Court consisting of Justice Rohinton Fali Nariman, Justice B.R. Gavai and Justice Hrishikesh Roy.

The Respondent, Galaxy Infra and Engineering Pvt. Ltd., is a company incorporated under the provisions of the Companies Act, 1956. The Appellant, Pravin Electricals Pvt. Ltd., operates in key industrial and commercial retail sectors and provides services for electrical supplies etc. On 26th May, 2014, an online tender was invited by Chief Engineer, South Bihar Power Distribution Company Ltd. (hereinafter referred to as “SBPDCL”) for appointment of implementing agencies for execution of a Scheme, on turnkey basis, for strengthening, improvement and augmentation of distribution systems capacities of 20 towns in Bihar. The Appellant submitted its technical and financial bid and was declared the L1 bidder and was awarded the work on 22nd September, 2014. It is the case of the Respondent that it had made substantial efforts under a Consultancy Agreement dated 7th July, 2014, to facilitate the Appellant in getting the aforesaid contract for which it was entitled to commission.

It is then alleged that the Appellant sent an email dated 15th July, 2014 to the Respondent with a draft agreement attached for comments and confirmation. On the same day, the Respondent sent its reply stating that certain terms were not acceptable. In emails that have surfaced for the first time in this Court dated 22nd July, 2014 and 25th July, 2014, the Respondent argued that, in point of fact, all differences between the parties were ironed out and a Final Consultancy Agreement was agreed upon through correspondence between the parties.

The contention of the respondent that it was PCTSPL which had made payments to the petitioner and this was on account of their own inter se business relationships has no merit. The invoice placed on record clearly shows that this was with respect to the contract awarded to the respondent by the Department with which admittedly PCTSPL had no direct relationship. This itself is indicative of the fact that dehors the addressee of the invoices, the same were with respect to the contract given by the department to the respondent and for which the petitioner was a consultant

Accordingly, Justice G.S. Sistani, a former Judge of the Delhi High Court was appointed as the Sole Arbitrator to adjudicate the dispute between the parties.

The learned Senior Advocate appearing on behalf of the Respondent, has taken us through all the correspondence again in order to show that even if the Consultancy Agreement dated 7th July, 2014 is not relied upon, yet, an arbitration clause exists in that the draft agreement that was exchanged between the parties culminated in a final agreement on 25th July, 2014. In any case, if the correspondence between SBPDCL and the Respondent is to be seen with CCs being marked to the Appellant, it is clear that the Respondent acted as a go-between and successfully obtained the bid for the Appellant having earned its commission thereon. He argued that the judgment under appeal does not require interference in that the CFSL report was also inconclusive and that the correspondence referred to by the learned Single Judge of the High Court would clearly show that the dramatis personae in this case interacted with each other and that, but for the efforts of his client, Pravin Electricals Pvt. Ltd. would never have got the bid. [Para 9]

The Court relied on the judgment of Mayavati Trading v. Pradyuat Deb Burman (2019) 8 SCC 714 and Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 and then examined the meaning of the expression “existence” which occurs in Section 11(6A) and summed up its discussion.

However, by a process of judicial interpretation, Vidya Drolia (supra) has now read the “prima facie test” into Section 11(6A) so as to bring the provisions of Sections 8(1) and 11(6) r/w 11(6A) on par. Considering that Section 11(7) and Section 37 have not been amended, an anomaly thus arises. Whereas in cases decided under Section 8, a refusal to refer parties to arbitration is appealable under Section 37(1)(a), a similar refusal to refer parties to arbitration under Section 11(6) read with Sections 6(A) and 7 is not appealable. In the light of what has been decided in Vidya Drolia (supra), Parliament may need to have a re-look at Section 11(7) and Section 37 so that orders made under Sections 8 and 11 are brought on par qua appealability as well. (Para 21)

However, we uphold the ultimate order appointing Justice G.S. Sistani, a retired Delhi High Court Judge as a Sole Arbitrator. The learned Judge will first determine as a preliminary issue as to whether an Arbitration Agreement exists between the parties, and go on to decide the merits of the case only if it is first found that such an agreement exists. It is clarified that all issues will be decided without being influenced by the observations made by this court which are only prima facie in nature. The appeal is allowed in the aforesaid terms. [Para 27]

Also, the Court held that the signature of the parties is not always mandatory for the existence of such agreements if the conduct and exchanges are in positive tones. Thus, by holding the existence of the arbitration agreement valid, the court-appointed a sole arbitrator for adjudication of the dispute and held Article 14 of the agreement as valid.

Keerthana R



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